Exhibit 3
STOCK OPTION AGREEMENT
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO
CERTAIN PROVISIONS CONTAINED HEREIN AND TO
RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated February 12, 1996, be-
tween CALIFORNIA BANCSHARES, INC., a Delaware corporation ("Is-
xxxx"), and U.S. BANCORP, an Oregon corporation ("Grantee").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer have entered into an
Agreement and Plan of Merger dated February 11, 1996 (the
"Merger Agreement"); and
WHEREAS, as a condition to Grantee's entering into
the Merger Agreement and in consideration therefor, Issuer has
agreed to grant Grantee the Option (as hereinafter defined):
NOW, THEREFORE, in consideration of the foregoing and
the mutual covenants and agreements set forth herein and in the
Merger Agreement, the parties hereto agree as follows:
1. (a) Issuer hereby grants to Grantee an uncondi-
tional, irrevocable option (the "Option") to purchase, subject
to the terms hereof, up to 2,002,076 fully paid and nonassess-
able shares of Issuer's Common Stock, $2.50 par value per share
("Common Stock"), at a price of $25.75 per share (the "Option
Price"); provided further that in no event shall the number of
shares of Common Stock for which this Option is exercisable
exceed 19.9 percent of the Issuer's issued and outstanding
shares of Common Stock. The number of shares of Common Stock
that may be received upon the exercise of the Option and the
Option Price are subject to adjustment as herein set forth.
(b) In the event that any additional shares of Com-
mon Stock are issued or otherwise become outstanding after the
date of this Agreement (other than pursuant to this Agreement),
the number of shares of Common Stock subject to the Option
shall be increased so that, after such issuance, it equals 19.9
percent of the number of shares of Common Stock then issued and
outstanding without giving effect to any shares subject or is-
sued pursuant to the Option. Nothing contained in this Section
1(b) or elsewhere in this Agreement shall be deemed to autho-
rize Issuer or Grantee to breach any provision of the Merger
Agreement.
2. (a) The Holder (as hereinafter defined) may
exercise the Option, in whole or in part, and from time to
time, if, but only if, both an Initial Triggering Event (as
hereinafter defined) and a Subsequent Triggering Event (as
hereinafter defined) shall have occurred prior to the occur-
rence of an Exercise Termination Event (as hereinafter de-
fined), provided that the Holder shall have sent the written
notice of such exercise (as provided in subsection (e) of this
Section 2) within 90 days following such Subsequent Triggering
Event. Each of the following shall be an Exercise Termination
Event: (i) the Effective Time of the Merger; (ii) termination
of the Merger Agreement in accordance with the provisions
thereof if such termination occurs prior to the occurrence of
an Initial Triggering Event except a termination by Grantee
pursuant to Section 8.1(d) of the Merger Agreement (unless the
breach by Issuer giving rise to such right of termination is
non-volitional); (iii) the passage of 12 months after termina-
tion of the Merger Agreement if such termination follows the
occurrence of an Initial Triggering Event or is a termination
by Grantee pursuant to Section 8.1(d) of the Merger Agreement
(unless the breach by Issuer giving rise to such right of ter-
mination is non-volitional) (provided that if an Initial Trig-
xxxxxx Event continues or occurs beyond such termination and
prior to the passage of such 12-month period, the Exercise Ter-
mination Event shall be 12 months from the expiration of the
Last Triggering Event but in no event more than 18 months after
such termination) or (iv) the third anniversary of the date
hereof. The "Last Triggering Event" shall mean the last Ini-
tial Triggering Event to expire. The term "Holder" shall mean
the holder or holders of the Option.
(b) The term "Initial Triggering Event" shall mean
any of the following events or transactions occurring after the
date hereof:
(i) Issuer or any of its Subsidiaries
(each an "Issuer Subsidiary"), without having
received Grantee's prior written consent,
shall have entered into an agreement to engage
in an Acquisition Transaction (as hereinafter
defined) with any person (the term "person"
for purposes of this Agreement having the
meaning assigned thereto in Sections 3(a)(9)
and 13(d)(3) of the Securities Exchange Act of
1934, as amended (the "1934 Act"), and the
rules and regulations thereunder) other than
Grantee or any of its Subsidiaries (each a
"Grantee Subsidiary") or the Board of Direc-
tors of Issuer shall have recommended that the
stockholders of Issuer approve or accept any
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such Acquisition Transaction. For purposes of
this Agreement, "Acquisition Transaction"
shall mean (w) a merger or consolidation, or
any similar transaction, involving Issuer or
any Significant Subsidiary (as defined in Rule
1-02 of Regulation S-X promulgated by the Se-
curities and Exchange Commission (the "SEC"))
of Issuer, (x) a purchase, lease, or other
acquisition of all or a substantial portion of
the assets of Issuer or any Significant Sub-
sidiary of Issuer, (y) a purchase or other
acquisition (including by way of merger, con-
solidation, share exchange or otherwise) of
securities representing 10 percent or more of
the voting power of Issuer, or any Significant
Subsidiary of Issuer, or (z) any substantially
similar transaction; provided, however, that
in no event shall any (i) merger, consolida-
tion, or similar transaction involving Issuer
or any Significant Subsidiary in which the
voting securities of Issuer outstanding imme-
diately prior thereto continue to represent
(by either remaining outstanding or being con-
verted into the voting securities of the sur-
viving entity of any such transaction) at
least 65 percent of the combined voting power
of the voting securities of the Issuer or the
surviving entity outstanding immediately after
the consummation of such merger, consolida-
tion, or similar transaction, or (ii) any mer-
ger, consolidation, purchase, or similar
transaction involving only the Issuer and one
or more of its Subsidiaries or involving only
any two or more, of such Subsidiaries, be
deemed to be an Acquisition Transaction, pro-
vided any such transaction is not entered into
in violation of the terms of the Merger Agree-
ment;
(ii) Issuer or any Issuer Subsidiary,
without having received Grantee's prior writ-
ten consent, shall have authorized, recom-
mended, proposed, or publicly announced its
intention to authorize, recommend, or propose,
to engage in an Acquisition Transaction with
any person other than Grantee or a Grantee
Subsidiary, or the Board of Directors of Is-
xxxx shall have publicly withdrawn or modi-
fied, or publicly announced its intent to
withdraw or modify, in any manner adverse to
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Grantee, its recommendation that the stock-
holders of Issuer approve the transactions
contemplated by the Merger Agreement;
(iii) Any person other than Grantee, any
Grantee Subsidiary, or any Issuer Subsidiary
acting in a fiduciary capacity in the ordinary
course of its business shall have acquired
beneficial ownership or the right to acquire
beneficial ownership of 15 percent or more of
the outstanding shares of Common Stock (the
term "beneficial ownership" for purposes of
this Option Agreement having the meaning as-
signed thereto in Section 13(d) of the 1934
Act, and the rules and regulations thereun-
der);
(iv) Any person other than Grantee or any
Grantee Subsidiary shall have made a bona fide
proposal to Issuer or its stockholders by pub-
lic announcement or written communication that
is or becomes the subject of public disclosure
to engage in an Acquisition Transaction;
(v) After an overture is made by a third
party to Issuer or its stockholders to engage
in an Acquisition Transaction, Issuer shall
have breached any covenant or obligation con-
tained in the Merger Agreement and such breach
(x) would entitle Grantee to terminate the
Merger Agreement and (y) shall not have been
cured prior to the Notice Date (as defined
below); or
(vi) Any person other than Grantee or any
Grantee Subsidiary, other than in connection
with a transaction to which Grantee has given
its prior written consent, shall have filed an
application or notice with the Federal Reserve
Board, or other federal or state bank regula-
tory authority, which application or notice
has been accepted for processing, for approval
to engage in an Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall
mean either of the following events or transactions occurring
after the date hereof:
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(i) The acquisition by any person of
beneficial ownership of 25 percent or more of
the then outstanding Common Stock; or
(ii) The occurrence of the Initial Trig-
xxxxxx Event described in clause (i) of sub-
section (b) of this Section 2, except that the
percentage referred to in clause (y) shall be
25 percent.
(d) Issuer shall notify Grantee promptly in writing
of the occurrence of any Initial Triggering Event or Subsequent
Triggering Event (together, a "Triggering Event"), it being
understood that the giving of such notice by Issuer shall not
be a condition to the right of the Holder to exercise the Op-
tion.
(e) In the event the Holder is entitled to and
wishes to exercise the Option, it shall send to Issuer a writ-
ten notice (the date of which being herein referred to as the
"Notice Date") specifying (i) the total number of shares it
will purchase pursuant to such exercise and (ii) a place and date
not earlier than three business days nor later than 60 business
days from the Notice Date for the closing of such purchase (the
"Closing Date"); provided that if prior notification to or ap-
proval of the Federal Reserve Board or any other regulatory
agency is required in connection with such purchase, the Holder
shall promptly file the required notice or application for ap-
proval and shall expeditiously process the same and the period
of time that otherwise would run pursuant to this sentence
shall run instead from the date on which any required notifica-
tion periods have expired or been terminated or such approvals
have been obtained and any requisite waiting period or periods
shall have passed. Any exercise of the Option shall be deemed
to occur on the Notice Date relating thereto.
(f) At the closing referred to in subsection (e) of
this Section 2, the Holder shall pay to Issuer the aggregate
purchase price for the shares of Common Stock purchased pursu-
ant to the exercise of the Option in immediately available
funds by wire transfer to a bank account designated by Issuer,
provided that failure or refusal of Issuer to designate such a
bank account shall not preclude the Holder from exercising the
Option.
(g) At such closing, simultaneously with the deliv-
ery of immediately available funds as provided in subsection
(f) of this Section 2, Issuer shall deliver to the Holder a
certificate or certificates representing the number of shares
of Common Stock purchased by the Holder and, if the Option
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should be exercised in part only, a new Option evidencing the
rights of the Holder thereof to purchase the balance of the
shares purchasable hereunder, and the Holder shall deliver to
Issuer a copy of this Agreement and a letter agreeing that the
Holder will not offer to sell or otherwise dispose of such
shares in violation of applicable law or the provisions of this
Agreement.
(h) Certificates for Common Stock delivered at a
closing hereunder may be endorsed with a restrictive legend
that shall read substantially as follows:
"The transfer of the shares represented
by this certificate is subject to certain
provisions of an agreement between the
registered holder hereof and Issuer and
to resale restrictions arising under the
Securities Act of 1933, as amended. A
copy of such agreement is on file at the
principal office of Issuer and will be
provided to the holder hereof without
charge upon receipt by Issuer of a writ-
ten request therefor."
It is understood and agreed that: (i) the reference to the
resale restrictions of the Securities Act of 1933, as amended
(the "1933 Act"), in the above legend shall be removed by de-
livery of substitute certificate(s) without such reference if
the Holder shall have delivered to Issuer a copy of a letter
from the staff of the SEC, or an opinion of counsel, in form
and substance reasonably satisfactory to Issuer, to the effect
that such legend is not required for purposes of the 1933 Act;
(ii) the reference to the provisions to this Agreement in the
above legend shall be removed by delivery of substitute certi-
ficate(s) without such reference if the shares have been sold
or transferred in compliance with the provisions of this Agree-
ment and under circumstances that do not require the retention
of such reference; and (iii) the legend shall be removed in its
entirety if the conditions in the preceding clauses (i) and
(ii) are both satisfied. In addition, such certificates shall
bear any other legend as may be required by law.
(i) Upon the giving by Holder to Issuer of the writ-
ten notice of exercise of the Option provided for under subsec-
tion (e) of this Section 2 and the tender of the applicable
purchase price in immediately available funds, the Holder shall
be deemed to be the holder of record of the shares of Common
Stock issuable upon such exercise, notwithstanding that the
stock transfer books of Issuer shall then be closed or that
certificates representing such shares of Common Stock shall not
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then be actually delivered to the Holder. Issuer shall pay all
expenses, and any and all United States federal, state, and
local taxes and other charges that may be payable in connection
with the preparation, issue, and delivery of stock certificates
under this Section 2 in the name of the Holder or its assignee,
transferee, or designee.
3. Issuer agrees: (i) that it shall at all times
maintain, free from preemptive rights, sufficient authorized
but unissued or treasury shares of Common Stock so that the
Option may be exercised without additional authorization of
Common Stock after giving effect to all other options, war-
rants, convertible securities, and other rights to purchase
Common Stock; (ii) that it will not, by charter amendment or
through reorganization, consolidation, merger, dissolution, or
sale of assets, or by any other voluntary act, avoid or seek to
avoid the observance or performance of any of the covenants,
stipulations, or conditions to be observed or performed here-
under by Issuer; (iii) promptly to take all action as may from
time to time be required (including (x) complying with all pre-
merger notification, reporting, and waiting period requirements
specified in 15 USC Section 18 and regulations promulgated
thereunder and (y) in the event, under the Bank Holding Company
Act of 1956, as amended (the "BHCA"), or the Change in Bank
Control Act of 1978, as amended, or any state banking law,
prior approval of or notice to the Federal Reserve Board or to
any state regulatory authority is necessary before the Option
may be exercised, cooperating fully with the Holder in prepar-
ing such applications or notices and providing such information
to the Federal Reserve Board or such state regulatory authority
as they may require) in order to permit the Holder to exercise
the Option and Issuer duly and effectively to issue shares of
Common Stock pursuant hereto, and (iv) promptly to take all
action provided herein to protect the rights of the Holder
against dilution.
4. This Agreement (and the Option granted hereby)
are exchangeable, without expense, at the option of the Holder,
upon presentation and surrender of this Agreement at the prin-
cipal office of Issuer, for other Agreements providing for Op-
tions of different denominations entitling the holder thereof
to purchase, on the same terms and subject to the same condi-
tion as are set forth herein, in the aggregate the same number
of shares of Common Stock purchasable hereunder. The terms
"Agreement" and "Option" as used herein include any Stock Op-
tion Agreements and related Options for which this Agreement
(and the Option granted hereby) may be exchanged. Upon receipt
by Issuer of evidence reasonably satisfactory to it of the
loss, theft, destruction, or mutilation of this Agreement, and
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(in the case of loss, theft, or destruction) of reasonably sat-
isfactory indemnification, and upon surrender and cancellation
of this Agreement, if mutilated, Issuer will execute and de-
liver a new Agreement of like tenor and date. Any such new
Agreement executed and delivered shall constitute an additional
contractual obligation on the part of Issuer, whether or not
the Agreement so lost, stolen, destroyed, or mutilated shall at
any time be enforceable by anyone.
5. In addition to the adjustment in the number of
shares of Common Stock that are purchasable upon exercise of
the Option pursuant to Section 1 of this Agreement, the number
of shares of Common Stock purchasable upon the exercise of the
Option and the Option Price shall be subject to adjustment from
time to time as provided in this Section 5. In the event of
any change in, or distributions in respect of, the Common Stock
by reason of stock dividends, split-ups, mergers, recapitaliza-
tions, combinations, subdivisions, conversions, exchanges of
shares, distributions on or in respect of the Common Stock that
would be prohibited under be terms of the Merger Agreement, or
the like, the type and number of shares of Common Stock pur-
chasable upon exercise hereof and the Option Price shall be
appropriately adjusted in such manner as shall fully preserve
the economic benefits provided hereunder and proper provision
shall be made in any agreement governing any such transaction
to provide for such proper adjustment and the full satisfaction
of the Issuer's obligations hereunder.
6. Upon the occurrence of a Subsequent Triggering
Event that occurs prior to an Exercise Termination Event, Is-
xxxx shall, at the request of Grantee delivered within 90 days
of such Subsequent Triggering Event (whether on its own behalf
or on behalf of any subsequent holder of this Option (or part
thereof) or any of the shares of Common Stock issued pursuant
hereto), promptly prepare, file, and keep current a shelf reg-
istration statement under the 1933 Act covering this Option and
any shares issued and issuable pursuant to this Option and
shall use its reasonable best efforts to cause such registra-
tion statement to become effective and remain current in order
to permit the sale or other disposition of this Option and any
shares of Common Stock issued upon total or partial exercise of
this Option ("Option Shares") in accordance with any plan of
disposition requested by Grantee. Issuer will use its reason-
able best efforts to cause such registration statement first to
become effective and then to remain effective for such period
not in excess of 180 days from the date such registration
statement first becomes effective or such shorter time as may
be reasonably necessary to effect such sales or other disposi-
tions. Grantee shall have the right to demand two such regis-
trations. The foregoing notwithstanding, if, at the time of
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any request by Grantee for registration of the Option or Option
Shares as provided above, Issuer is in registration with re-
spect to an underwritten public offering of shares of Common
Stock, and if in the good faith judgment of the managing under-
writer or managing underwriters, or, if none, the sole under-
writer or underwriters, of such offering the inclusion of the
Holder's Option or Option Shares would interfere with the suc-
cessful marketing of the shares of Common Stock offered by Is-
xxxx, the number of Option Shares otherwise to be covered in
the registration statement contemplated hereby may be reduced;
and provided, however, that after any such required reduction
the number of Option Shares to be included in such offering for
the account of the Holder shall constitute at least 25 percent
of the total number of shares to be sold by the Holder and Is-
xxxx in the aggregate; and provided further, however, that if
such reduction occurs, then the Issuer shall file a registra-
tion statement for the balance as promptly as practical and no
reduction shall thereafter occur. Each such Holder shall pro-
vide all information reasonably requested by Issuer for inclu-
sion in any registration statement to be filed hereunder. If
requested by any such Holder in connection with such registra-
tion, Issuer shall become a party to any underwriting agreement
relating to the sale of such shares, but only to the extent of
obligating itself in respect of representations, warranties,
indemnities, and other agreements customarily included in such
underwriting agreements for the Issuer. Upon receiving any
request under this Section 6 from any Holder, Issuer agrees to
send a copy thereof to any other person known to Issuer to be
entitled to registration rights under this Section 6, in each
case by promptly mailing the same, postage prepaid, to the ad-
dress of record of the persons entitled to receive such copies.
Notwithstanding anything to the contrary contained herein, in
no event shall Issuer be obligated to effect more than two reg-
istrations pursuant to this Section 6 by reason of the fact
that there shall be more than one Grantee as a result of any
assignment or division of this Agreement.
7. (a) Immediately prior to the occurrence of a
Repurchase Event (as defined below), (i) following a request of
the Holder, delivered prior to an Exercise Termination Event,
Issuer (or any successor thereto) shall repurchase the Option
from the Holder at a price (the "Option Repurchase Price")
equal to the amount by which (A) the market/offer price (as
defined below) exceeds (B) the Option Price, multiplied by the
number of shares for which this Option may then be exercised
and (ii) at the request of the owner of Option Shares from time
to time (the "Owner"), delivered within 90 days of such occur-
rence (or such later period as provided in Section 10), Issuer
shall repurchase such number of the Option Shares from the
Owner as the Owner shall designate at a price (the "Option
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Share Repurchase Price") equal to the market/offer price multi-
plied by the number of Option Shares so designated. The term
"market/offer price" shall mean the highest of the following
amounts with respect to the six-month period immediately pre-
ceding the date the Holder gives notice of the required repur-
chase of this Option or the Owner gives notice of the required
repurchase of Option Shares, as the case may be: (i) the price
per share of Common Stock at which a tender offer or exchange
offer therefor has been made, (ii) the price per share of Com-
mon Stock to be paid by any third party pursuant to an agree-
ment with Issuer, (iii) the highest closing price for shares of
Common Stock, or (iv) in the event of a sale of all or a sub-
stantial portion of Issuer's assets, the sum of the price paid
in such sale for such assets and the current market value of
the remaining assets of Issuer as determined by a nationally
recognized investment banking firm selected by the Holder or
the Owner, as the case may be, divided by the number of shares
of Common Stock of Issuer outstanding at the time of such sale.
In determining the market/offer price, the value of consider-
ation other than cash shall be determined by a nationally rec-
ognized investment banking firm selected by the Holder or
Owner, as the case may be, and reasonably acceptable, to Is-
xxxx. Notwithstanding the foregoing, if the same person who
has participated in a Triggering Event has entered, or after
such Triggering Event has occurred enters, into any agreement
or understanding with Grantee relating to Grantee's rights un-
der this Option or with respect to the Option Shares or di-
rectly or indirectly relating to Issuer, Grantee shall, not-
withstanding the terms of such agreement or understanding, at
any time upon the occurrence of a Subsequent Triggering Event
of the type set forth in Section 3(d)(i) without Issuer's ap-
proval, recommendation or consent, promptly request that Issuer
repurchase the Option and any Option Shares held by Grantee as
provided in this Section 8 and Issuer shall do so.
(b) The Holder and the Owner, as the case may be,
may exercise its right to require Issuer to repurchase the Op-
tion and any Option Shares pursuant to this Section 7 by sur-
rendering for such purpose to Issuer, at its principal office,
a copy of this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating
that the Holder or the Owner, as the case may be, elects to
require Issuer to repurchase this Option and/or the Option
Shares in accordance with the provisions of this Section 7.
Within the latter to occur of (x) five business days after the
surrender of the Option and/or certificates representing Option
Shares and the receipt of such notice or notices relating
thereto and (y) the time that is immediately prior to the oc-
xxxxxxxx of a Repurchase Event, Issuer shall deliver or cause
to be delivered to Holder the Option Repurchase Price, and/or
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to the Owner the Option Share Repurchase Price therefor or the
portion thereof that Issuer is not then prohibited under ap-
plicable law and regulation from so delivering.
(c) To the extent that Issuer is prohibited under
applicable law or regulation from repurchasing the Option and/
or the Option Shares in full, Issuer shall immediately so no-
tify the Holder and/or the Owner and thereafter deliver or
cause to be delivered, from time to time, to the Holder and/or
the Owner, as appropriate, the portion of the Option Repurchase
Price and the Option Share Repurchase Price, respectively, that
it is no longer prohibited from delivering, within five busi-
ness days after the date on which Issuer is no longer so pro-
hibited; provided, however, that if Issuer at any time after
delivery of a notice of repurchase pursuant to paragraph (b) of
this Section 7 is prohibited under applicable law or regulation
from delivering to the Holder and/or the Owner, as appropriate,
the Option Repurchase Price and the Option Share Repurchase
Price, respectively, in full (and Issuer hereby undertakes to
use its best efforts to obtain all required regulatory and le-
gal approvals and file any required notices as promptly as
practicable in order to accomplish such repurchase), the Holder
or Owner may revoke its notice of repurchase of the Option or
the Option Shares either in whole or to the extent of the pro-
hibition, whereupon, in the latter case, Issuer shall promptly
(i) deliver to the Holder and/or the Owner, as appropriate,
that portion of the Option Repurchase Price or the Option Share
Repurchase Price that Issuer is not prohibited from delivering;
and (ii) deliver, as appropriate, either (A) to the Holder, a
new Stock Option Agreement evidencing the right of the Holder
to purchase that number of shares of Common Stock obtained by
multiplying the number of shares of Common Stock for which the
surrendered Stock Option Agreement was exercisable at the time
of delivery of the notice of repurchase by a fraction, the nu-
merator of which is the Option Repurchase Price less the por-
tion thereof theretofore delivered to the Holder and the de-
nominator of which is the Option Repurchase Price, or (B) to
the Owner, a certificate for the Option Shares it is then so
prohibited from repurchasing.
(d) For purposes of this Section 7, a Repurchase
Event shall be deemed to have occurred (i) upon the consumma-
tion of any merger, consolidation, or similar transaction in-
volving Issuer or any purchase, lease, or other acquisition of
all or a substantial portion of the assets of Issuer, other
than any such transaction which would not constitute an Acqui-
sition Transaction pursuant to the proviso to Section 2(b)(i)
hereof or (ii) upon the acquisition by any person of beneficial
ownership of 50 percent or more of the then outstanding shares
of Common Stock, provided that no such event shall constitute a
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Repurchase Event unless a Subsequent Triggering Event shall
have occurred prior to an Exercise Termination Event. The par-
ties hereto agree that Issuer's obligations to repurchase the
Option or Option Shares under this Section 7 shall not termi-
nate upon the occurrence of an Exercise Termination Event un-
less no Subsequent Triggering Event shall have occurred prior
to the occurrence of an Exercise Termination Event.
8. (a) In the event that prior to an Exercise Ter-
mination Event, Issuer shall enter into an agreement (i) to
consolidate with or merge into any person, other than Grantee
or one of its Subsidiaries, and shall not be the continuing or
surviving corporation of such consolidation or merger, (ii) to
permit any person, other than Grantee or one of its Subsidiar-
ies, to merge into Issuer and Issuer shall be the continuing or
surviving corporation, but, in connection with such merger, the
then outstanding shares of Common Stock shall be changed into
or exchanged for stock or other securities of any other person
or cash or any other property or the then outstanding shares of
Common Stock shall after such merger represent less than 50
percent of the outstanding voting shares and voting share
equivalents of the merged company, or (iii) to sell or other-
wise transfer all or substantially all of its assets to any
person, other than Grantee or one of its Subsidiaries, then,
and in each such case, the agreement governing such transaction
shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and
conditions set forth herein, be converted into, or exchanged
for, an option (the "Substitute Option"), at the election of
the Holder, of either (x) the Acquiring Corporation (as herein-
after defined) or (y) any person that controls the Acquiring
Corporation.
(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i)
the continuing or surviving corporation of a con-
solidation or merger with Issuer (if other than
Issuer), (ii) Issuer in a merger in which Issuer is
the continuing or surviving person, and (iii) the
transferee of all or substantially all of Issuer's
assets.
(2) "Substitute Common Stock" shall mean the
common stock issued by the Issuer of the Substitute
Option upon exercise of the Substitute Option.
(3) "Assigned Value" shall mean the market/
offer price, as defined in Section 7.
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(4) "Average Price" shall mean the average
closing price of a share of the Substitute Common
Stock for the one year immediately preceding the
consolidation, merger, or sale in question, but in
no event higher than the closing price of the
shares of Substitute Common Stock on the date pre-
ceding such consolidation, merger or sale; provided
that if Issuer is the issuer of the Substitute Op-
tion, the Average Price shall be computed with re-
spect to a share of common stock issued by the per-
son merging into Issuer or by any company which
controls or is controlled by such person, as the
Holder may elect.
(c) The Substitute Option shall have the same terms
as the Option, provided, that if the terms of the Substitute
Option cannot, for legal reasons, be the same as the Option,
such terms shall be as similar as possible and in no event less
advantageous to the Holder. The issuer of the Substitute Op-
tion shall also enter into an agreement with the then Holder or
Holders of the Substitute Option in substantially the same form
as this Agreement, which shall be applicable to the Substitute
Option.
(d) The Substitute Option shall be exercisable for
such number of shares of Substitute Common Stock as is equal to
the Assigned Value multiplied by the number of shares of Common
Stock for which the Option is then exercisable, divided by the
Average Price. The exercise price of the Substitute Option per
share of Substitute Common Stock shall then be equal to the
Option Price multiplied by a fraction, the numerator of which
shall be the number of shares of Common Stock for which the
Option is then exercisable and the denominator of which shall
be the number of shares of Substitute Common Stock for which
the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing
paragraphs, shall be Substitute Option be exercisable for more
than 19.9 percent of the shares of Substitute Common Stock out-
standing prior to the exercise of the Substitute Option. In
the event that the Substitute Option would be exercisable for
more than 19.9 percent of the shares of Substitute Common Stock
outstanding prior to exercise but for this clause (c), the is-
xxxx of the Substitute Option (the "Substitute Option Issuer")
shall make a cash payment to Holder equal to the excess of (i)
the value of the Substitute Option without giving effect to the
limitation in this clause (e) over (ii) the value of the Sub-
stitute Option after giving effect to the limitation in this
clause (e). This difference in value shall be determined by a
nationally recognized investment banking firm selected by the
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Holder or the Owner, as the case may be, and reasonably accept-
able to the Acquiring Corporation.
(f) Issuer shall not enter into any transaction de-
scribed in subsection (a) of this Section 8 unless the Acquir-
ing Corporation and any person that controls the Acquiring Cor-
poration assume in writing all the obligations of Issuer here-
under.
9. (a) At the request of the holder of the Substi-
tute Option (the "Substitute Option Holder"), the issuer of the
Substitute Option (the "Substitute Option Issuer") shall repur-
chase the Substitute Option from the Substitute Option Holder
at a price (the "Substitute Option Repurchase Price") equal to
the amount by which (i) the Highest Closing Price (as hereinaf-
ter defined) exceeds (ii) the exercise price of the Substitute
Option, multiplied by the number of shares of Substitute Common
Stock for which the Substitute Option may then be exercised,
and at the request of the owner (the "Substitute Share Owner")
of shares of Substitute Common Stock (the "Substitute Shares"),
the Substitute Option Issuer shall repurchase the Substitute
Shares at a price (the "Substitute Share Repurchase Price")
equal to the Highest Closing Price multiplied by the number of
Substitute Shares so designated. The term "Highest Closing
Price" shall mean the highest closing price for shares of Sub-
stitute Common Stock within the six-month period immediately
preceding the date the Substitute Option Holder gives notice of
the required repurchase of the Substitute Option or the Substi-
tute Share Owner gives notice of the required repurchase of the
Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute
Share Owner, as the case may be, may exercise its respective
rights to require the Substitute Option Issuer to repurchase
the Substitute Option and the Substitute Shares pursuant to
this Section 9 by surrendering for such purpose to the Substi-
tute Option Issuer, at its principal office, the agreement for
such Substitute Option (or, in the absence of such an agree-
ment, a copy of this Agreement) and certificates for Substitute
Shares accompanied by a written notice or notices stating that
the Substitute Option Holder or the Substitute Share Owner, as
the case may be, elects to require the Substitute Option Issuer
to repurchase the Substitute Option and/or the Substitute
Shares in accordance with the provisions of this Section 9. As
promptly as practicable, and in any event within five business
days after the surrender of the Substitute Option and/or cer-
tificates representing Substitute Shares and the receipt of
such notice or notices relating thereto, the Substitute Option
Issuer shall deliver or cause to be delivered to the Substitute
Option Holder the Substitute Option Repurchase Price and/or to
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the Substitute Share Owner the Substitute Share Repurchase
Price therefor or the portion thereof which the Substitute Op-
tion Issuer is not then prohibited under applicable law and
regulation from so delivering.
(c) To the extent that the Substitute Option Issuer
is prohibited under applicable law or regulation from repur-
chasing the Substitute Option and/or the Substitute Shares in
part or in full, the Substitute Option Issuer shall immediately
so notify the Substitute Option Holder and/or the Substitute
Share Owner and thereafter deliver or cause to be delivered,
from time to time, to the Substitute Option Holder and/or the
Substitute Share Owner, as appropriate, the portion of the Sub-
stitute Share Repurchase Price, respectively, which it is no
longer prohibited from delivering, within five business days
after the date on which the Substitute Option Issuer is no
longer so prohibited; provided, however, that if the Substitute
Option Issuer is at any time after delivery of a notice of re-
purchase pursuant to subsection (b) of this Section 9 prohib-
ited under applicable law or regulation from delivering to the
Substitute Option Holder and/or the Substitute Share Owner, as
appropriate, the Substitute Option Repurchase Price and the
Substitute Share Repurchase Price, respectively, in full (and
the Substitute Option Issuer shall use its best efforts to re-
ceive all required regulatory and legal approvals as promptly
as practicable in order to accomplish such repurchase), the
Substitute Option Holder or Substitute Share Owner may revoke
its notice of repurchase of the Substitute Option or the Sub-
stitute Shares either in whole or to the extent of the prohibi-
tion, whereupon, in the latter case, the Substitute Option Is-
xxxx shall promptly (i) deliver to the Substitute Option Holder
or Substitute Share Owner, as appropriate, that portion of the
Substitute Option Repurchase Price or the Substitute Share Re-
purchase Price that the Substitute Option Issuer is not prohib-
ited from delivering; and (ii) deliver, as appropriate, either
(A) to the Substitute Option Holder, a new Substitute Option
evidencing the right of the Substitute Option Holder to pur-
chase that number of shares of the Substitute Common Stock ob-
tained by multiplying the number of shares of the Substitute
Common Stock for which the surrendered Substitute Option was
exercisable at the time of delivery of the notice of repurchase
by a fraction, the numerator of which is the Substitute Option
Repurchase Price less the portion thereof theretofore delivered
to the Substitute Option Holder and the denominator of which is
the Substitute Option Repurchase Price, or (B) to the Substi-
tute Share Owner, a certificate for the Substitute Option
Shares it is then so prohibited from repurchasing.
10. The 90-day period for exercise of certain rights
under Sections 2, 6, 7, and 13 shall be extended: (i) to the
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extent necessary to obtain all regulatory approvals for the
exercise of such rights and for the expiration of all statutory
waiting periods; and (ii) to the extent necessary to avoid li-
ability under Section 16(b) of the 1934 Act by reason of such
exercise.
11. Issuer hereby represents and warrants to Grantee
as follows:
(a) Issuer has full corporate power and author-
ity to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation of the transactions con-
templated hereby have been duly and validly authorized by the
Board of Directors of Issuer and no other corporate proceedings
on the part of Issuer are necessary to authorize this Agreement
or to consummate the transactions so contemplated. This Agree-
ment has been duly and validly executed and delivered by Is-
xxxx.
(b) Issuer has taken all necessary corporate
action to authorize and reserve and to permit it to issue, and
at all times from the date hereof through the termination of
this Agreement in accordance with its terms will have reserved
for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of
Common Stock at any time and from time to time issuable hereun-
der, and all such shares, upon issuance pursuant hereto, will
be duly authorized, validly issued, fully paid, nonassessable,
and will be delivered free and clear of all claims, liens, en-
cumbrances, and security interests and not subject to any pre-
emptive rights.
12. Grantee hereby represents and warrants to Issuer
that:
(a) Grantee has all requisite corporate power
and authority to enter into this Agreement and, subject to any
approvals or consents referred to herein, to consummate the
transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation of the transactions con-
templated hereby have been duly authorized by all necessary
corporate action on the part of Grantee. This Agreement has
been duly executed and delivered by Grantee.
(b) The Option is not being, and any shares of
Common Stock or other securities acquired by Grantee upon exer-
cise of the Option will not be, acquired with a view to the
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public distribution thereof and will not be transferred or oth-
erwise disposed of except in a transaction registered or exempt
from registration under the Securities Act.
13. Neither of the parties hereto may assign any of
its rights or obligations under this Option Agreement or the
Option created hereunder to any other person, without the ex-
press written consent of the other party, except that in the
event a Subsequent Triggering Event shall have occurred prior
to an Exercise Termination Event, Grantee, subject to the ex-
press provisions hereof, may assign in whole or in part its
rights and obligations hereunder within 90 days following such
Subsequent Triggering Event (or such later period as provided
in Section 10); provided, however, that until the date 15 days
following the date on which the Federal Reserve Board approves
an application by Grantee under the BHCA to acquire the shares
of Common Stock subject to the Option, Grantee may not assign
its rights under the Option except in (i) a widely dispersed
public distribution, (ii) a private placement in which no one
party acquires the right to purchase in excess of 2 percent of
the voting shares of Issuer, (iii) an assignment to a single
party (e.g., a broker or investment banker) for the purpose of
conducting a widely dispersed public distribution on Grantee's
behalf, or (iv) any other manner approved by the Federal Re-
serve Board.
14. Each of Grantee and Issuer will use its best
efforts to make all filings with, and to obtain consents of,
all third parties and governmental authorities necessary to the
consummation of the transactions contemplated by this Agree-
ment, including without limitation making application to list
the shares of Common Stock issuable hereunder on the NASDAQ
Stock Market National Market System upon official notice of
issuance and applying to the Federal Reserve Board under the
BHCA for approval to acquire the shares issuable hereunder, but
Grantee shall not be obligated to apply to state banking au-
thorities for approval to acquire the shares of Common Stock
issuable hereunder until such time, if ever, as it deems ap-
propriate to do so.
15. Notwithstanding anything to the contrary herein,
in the event that the Holder or Owner or any Related Person (as
hereinafter defined) thereof is a person making an offer or
proposal to engage in an Acquisition Transaction (other than
the transaction contemplated by the Merger Agreement), then (i)
in the case of a Holder or any Related Person thereof, the Op-
tion held by it shall immediately terminate and be of no fur-
ther force or effect, and (ii) in the case of an Owner or any
Related Person thereof, the Option Shares held by it shall be
immediately repurchasable by Issuer at the Option Price. A
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"Related Person" of a Holder or Owner means any "affiliate" (as
defined in Rule 12b-2 of the rules and regulations under the
0000 Xxx) of the Holder or Owner and any person that is the
beneficial owner of 25% or more of the voting power of the
Holder or Owner, as the case may be.
16. The parties hereto acknowledge that damages
would be an inadequate remedy for a breach of this Agreement by
either party hereto and that the obligations of the parties
hereto shall be enforceable by either party hereto through in-
junctive or other equitable relief.
17. If any term, provision, covenant, or restriction
contained in this Agreement is held by a court or a federal or
state regulatory agency of competent jurisdiction to be in-
valid, void, or unenforceable, the remainder of the terms, pro-
visions, and covenants and restrictions contained in this
Agreement shall remain in full force and effect, and shall in
no way be affected, impaired, or invalidated. If for any rea-
son such court or regulatory agency determines that the Holder
is not permitted to acquire, or Issuer is not permitted to re-
purchase pursuant to Section 7, the full number of shares of
Common Stock provided in Section 1(a) hereof (as adjusted pur-
suant to Section 1(b) or 5 hereof), it is the express intention
of Issuer to repurchase such lesser number of shares as may be
permissible, without any amendment or modification hereof.
18. All notices, requests, claims, demands, and
other communications hereunder shall be deemed to have been
duly given when delivered in person, by cable, telegram, tele-
copy, or telex, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses
of the parties set forth in the Merger Agreement.
19. This Agreement shall be governed by and con-
strued in accordance with the laws of the State of Oregon, re-
gardless of the laws hat might otherwise govern under appli-
cable principles of conflicts of laws thereof.
20. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original,
but all of which shall constitute one and the same agreement.
21. Except as otherwise expressly provided herein,
each of the parties hereto shall bear and pay all costs and
expenses incurred by it or on its behalf in connection with the
transactions contemplated hereunder, including fees and ex-
penses of its own financial consultants, investment bankers,
accountants, and counsel.
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22. Except as otherwise expressly provided herein or
in the Merger Agreement, this Agreement contains the entire
agreement between the parties with respect to the transactions
contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereof, written or oral. The
terms and conditions of this Agreement shall inure to the ben-
efit of and be binding upon the parties hereto and their re-
spective successors and permitted assigns. Nothing in this
Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective suc-
cessors except as assigns, any rights, remedies, obligations,
or liabilities under or by reason of this Agreement, except as
expressly provided herein.
23. Capitalized terms used in this Agreement and not
defined herein shall have the meanings assigned thereto in the
Merger Agreement.
IN WITNESS WHEREOF, each of the parties has caused
this Agreement to be executed on its behalf by its officers
thereunto duly authorized, all as of the date first above writ-
ten.
CALIFORNIA BANCSHARES, INC.
Attest: /s/ Xxxxx Xxxxxxx By: /s/ Xxxxxx X. Xxxxxxx
Title: President & CEO
U.S. BANCORP
Attest: /s/ Xxxx X. XxXxxx By: /s/ Xxxxx X. Xxxxxxx
Title: Chairman & CEO
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